Linus Uhlig, Investment Week, 13 May 2025:
Middlefield Canadian Income trust’s (MCT) proposal for a rollover into an active ETF has drawn questions from sceptical analysts, who have cast doubt on its rationale.
Earlier this month, MCT said it intends to propose an option to offer liquidity to shareholders in a first-of-its kind solution for the UK that would see the rollover of an investment company into an actively managed UCITS ETF.
The trust’s decision came after intense activism from New York-based hedge fund Saba Capital, making it the second investment trust of the nine targeted by Boaz Weinstein’s firm to propose some form of solution..
“A move into an actively managed ETF structure is uncharted territory,” QuotedData’s senior research analyst Matthew Read said at the time.
Since then, analysts and investment trust experts have continued to question the rationale behind ditching the trust structure.
Relative to investment companies, the active ETF “is a less flexible structure”, noted James Carthew, QuotedData’s head of investment company research.
“You do not have the benefit of an independent board working on your behalf and… the portfolio must be liquid – which ought to rule out investing in small caps, for example,” he added..
During periods of market stress, Carthew warned that active ETFs risk seeing “sizable outflows…that make these vehicles unviable and liable to close just as markets are close to the bottom”.
“It might be bias from years of backing closed-end funds, but I think I would prefer an equivalent closed-end fund with a zero discount policy,” he argued.
Read more here